• WTI falling at the start of the week following scepticism over what a 'phase 1' trade deal
  • Bloomberg reported that China asked for more talks with the US before signing the first phase of a trade deal.

US oil is struggling in a volatile geopolitical environment, stripping value in the price of a barrel over renewed concerns over energy demand. The US benchmark, West Texas Intermediate crude is trading down by 2.35% on a spot basis having fallen from a high of $54.87 to a low of $52.76.

WTI came under pressure at the start of the week following scepticism over what a 'phase 1' trade deal between the Chinese and US would look like. Considering there had been no agreement 'inked', and only one made in principal, there was always going to be the possibility that a deal may dwindle away in further disagreements or misunderstandings on what had been agreed in principle. The details of the phase 1 deal were not released, so that too leaves the door open for scrutiny by the markets.

There were reports floating around, originating in a Bloomberg article, that China asked for more talks with the US before signing the first phase of a trade deal. The news weighed on the price of futures with crude for November delivery losing $1.72, or 3.1%, to trade at $52.98 a barrel on the New York Mercantile Exchange, paring back the majority of the 3.6% rise for last week.

Eyes on OPEC

"Downside momentum signals are still strengthening in crude, with 89% of momentum signals now pointing short while only a 10% of technical analysis signals are suggesting that we are oversold," analysts at TD Securities explained.

"Barkindo's messaging suggests that OPEC is wary of the 'catastrophic' consequences of a no deal scenario in the US-China trade talks, but it is increasingly unlikely the cartel will be able to deliver the required cuts quickly enough to prevent a loosening of conditions next year, in which case there are concerns that Saudi Arabia could have difficulty persuading allies to deepen their curtailments when the cartel meets in December."

WTI levels

The Aussie is starting the week unable to capitalize on last week's gains.

The level to beat for bulls is the 0.6780 resistance.

AUD/USD daily chart

The Aussie is trading in a downtrend below its 100 and 200 simple moving averages (SMAs) on the daily chart. Columbus Day in the United States is keeping volatility limited.

AUD/USD 4-hour chart

The AUD/USD exchange rate is trading between the 100 and 200 SMAs, suggesting a sideways market in the medium term. The spot is challenging the 0.6780 resistance. A break above the level can see the Aussie moving up the 0.6820 level, according to the Technical Confluences Indicator.

AUD/USD 30-minute chart

AUD/USD is trading below the 50 and 100 SMAs on the 30-minute chart, suggesting a consolidation in the near term. Support is seen at the 0.6750 and 0.6720 price level.

Additional key levels

  • GBP/USD is starting the week pulling back down after the sharp spike up from last week.
  • GBP/USD is trading below the 1.2600 handle after the London close.

GBP/USD daily chart

GBP/USD, on the daily chart, is trading in a downtrend below the 200-day simple moving average (DSMA). This Monday, the spot has been consolidating last week's advanced sparked by the Brexit deal optimism.

GBP/USD four-hour chart

GBP/USD is retracing down and trying to establish a base above the 1.2543/30 support zone. The market likely needs a daily close above the 1.2600 level to open the gates to 1.2700, according to the Technical Confluences Indicator.

GBP/USD 30-minute chart

The Sterling is trading above the 100 and 200 SMAs, suggesting bullish momentum in the near term. Support is seen at the 1.2543/30 zone and the 1.2477 level, according to the Technical Confluences Indicator.

Additional key levels

  • GBP shorts have been falling, USD net longs have also slipped.
  • Brexit negotiations continued over the weekend ahead of EU summit, but lots to be done.

Net short GBP positions dropped back for a fourth consecutive week, although long GBP/USD is losing its appeal today having come off the highs for the day up at 1.2649 and scoring a low of 1.2515 as Brexit risk pressures the Pound.

There had been a lift in optimism regarding the prospects of a Brexit deal between the UK and the EU, particularly in the last week. Negotiations continued over the weekend, however, Boris Johnson has a very tough balancing act in trying to keep the DUP onside but also come up with something that works for the EU and there is a lot of work to do.

In recent trade, we are hearing echos of the weekend news that it is unlikely that a deal can be achieved before the EU Council meeting on Thursday. However, that is not to say that European leaders could not gather for a second occasion or extend the Council meeting into the following week should need be.

We are heading into the Brexit eleventh-hour

"Either way domestic developments will kick off when parliament sits on Saturday," analysts at TD Securities explained. "If there's a deal then parliament will vote on it, though it's highly uncertain whether it would be able to pass, with some Tory rebels reportedly pushing for a confirmatory referendum first. And if there is no agreement then the Benn Act comes into play, which forces PM Johnson to request an extension from the EU, something that he may try to fight."

While GBP shorts have been falling, USD net longs have also slipped for the first time since the middle of August. "Recent US economic data have highlighted the debate regarding the extent of the downturn faced by the US in the months ahead. Focus is on the October 30 FOMC meeting and the prospects of a Fed rate cut," analysts at Rabobank explained.

GBP/USD levels

Finnish Prime Minister Antti Rinne crossed the wires in the last minutes arguing that there is not enough time in a practical or a legal way to find a Brexit agreement ahead of the European Council meeting on Thursday.

"We need more time, Brexit negotiations with the United Kingdom (UK) need to continue after the European Council meeting," said Rinne.

The British Pound came under renewed selling pressure on these comments and the GBP/USD pair slumped to a session low of 1.2537 before recovering modestly. As of writing, the pair was down 0.63% on the day at 1.2568.

Commenting on the latest Commitments of Traders (COT) report published by the United States (US) Commodity Futures Trading Commission (CFTC), "The aggregate speculative USD positions vs G10 currencies show that demand for the dollar remains stable and in line with its historical average," noted ING analysts.

Key quotes

"EUR/USD speculative shorts continue gradually increasing. This is in line with our non-optimistic view on the cross as the lack of tangible and credible US-China trade conflict resolution is unlikely to lead to a weaker USD. We expect EUR/USD to settle in the 1.05 -1.10 range for the rest of the year."

"GBP short positions had been squeezed by around 2% of open interest in the days before 8 October, but the figure does not capture the big spot movements during last Thursday and Friday when sterling rallied close to 4% against the USD."

"The move in the pair was likely aided by significant position-squaring effect given the extended GBP shorts, at 30% of open interest on 8 October. Expect this number to shrink significantly in the next CFTC report. Given the still large one way GBP positioning, the pound has scope for a further rally should the withdrawal agreement be reached this week, however, we still think the bar for this is quite high."

  • Optimism on trade talks is improving the market mood and lessening the demand for the safe-haven metal.
  • Gold is trading below the 1,500 psychological mark as the week is starting.

Gold four-hour chart

The yellow metal is trading below the 50,100 and 200-day simple moving average (SMA) while below the 1,500 mark; all-in-all suggesting a bearish bias in the medium term. A break below $1,475 a troy once can expose the 1,460 swing low. On the flip side, a daily close above 1,500 could spark some interest in the 1,510/1,520 resistance levels in the medium term.

Additional key levels

  • Industrial production in the eurozone expanded in August.
  • US Dollar Index looks to post modest daily gains near 98.50.
  • Coming up: ZEW sentiment data from Germany and the eurozone.

Boosted by the broad-based USD weakness seen on Thursday and Friday, the EUR/USD pair gained traction and closed the last week in the positive territory. With the market action turning subdued amid a lack of significant macroeconomic drivers on Monday, however, the pair struggled to push higher and retraced a portion of last week's gains. As of writing, the pair was down 0.17% on the day at 1.1020.

Earlier in the day, in its monthly publication, the Eurostat reported that industrial production in the eurozone in August expanded by 0.4% on a monthly basis in August. The annual growth rate, however, slumped to -2.8% and fell short of the market expectation of -2.5% to weigh on the shared currency.

Attention shifts to eurozone sentiment data

Meanwhile, European Central Bank's vice-president Luis de Guindos on Monday reiterated that he does not expect the eurozone to enter into a recession and noted that the latest development regarding the United States (US)-China trade deal was "good news."

On Tuesday, the ZEW Economic Sentiment Index reading for Germany and the eurozone will be looked upon for fresh impetus. Markets expect the Economic Sentiment Index in Germany to worsen to -27.3 in October from -22.5 in September.

On the other hand, the US Dollar Index took advantage of the subdued market action and recovered to 98.50 area on Monday to keep the modest bearish pressure on the pair intact. The pair is unlikely to break out of its daily trading range in the remainder of the day due to thin trading conditions on the Columbus Day holiday in the US.

Technical levels to watch for

  • Little demand for the safe-haven yen keeps USD/JPY near two-months highs.
  • USD/JPY is trading near daily highs in the last part of the London session.

USD/JPY daily chart

The USD/JPY exchange rate is trading in a bear trend below the 200-day simple moving average (DSMA). However, the market is bouncing sharply from the October lows and is now trading near two-months highs. The better market mood is lessening the demand for the safe-haven Yen.

USD/JPY four-hour chart

USD/JPY is trading above the main SMAs on the four-hour chart, suggesting bullish momentum in the medium term. The market is nearing the 108.56 resistance. A daily close above this resistance can open the gates to the 109.12 price level, according to the Technical Confluences Indicator.

USD/JPY 30-minute chart

The USD/JPY currency pair is trading above its main SMAs, suggesting bullish momentum in the near term. Immediate supports are seen at the 108.16 and 107.70 levels, according to the Technical Confluences Indicator.

Additional key levels

  • Barrel of West Texas Intermediate (WTI) loses more than 3% on Monday.
  • US Dollar Index steadies near the 98.50 handle.
  • The pair is likely to stay in a consolidation phase in the second half of the day.

Despite the subdued trading action on Monday amid the Columbus Day holiday in the United States (US) and the Thanksgiving Day holiday in Canada, the USD/CAD pair inched higher on Monday as the sharp drop witnessed in crude oil prices weighed on the commodity-related Loonie. As of writing, the pair was trading at 1.3227, adding 0.24% on a daily basis.

Crude oil turns south on Monday

Heightened geopolitical tensions in the Middle East and the uncertainty surrounding the "phase one" trade deal that the US reached with China on Friday caused crude oil prices to start the week under heavy selling pressure.

After gaining more than $2 in the second half of the week, the barrel of West Texas Intermediate (WTI) erased almost all of last week's gains and was last seen trading at $52.90, down 3.4% on the day.

Commenting on the trade war developments, "there is a five-week period for the two sides to write down exactly what they agreed to in the meeting. This raises questions about how much "progress" has really been made," said ING analysts. "We think there are probably some important disagreements on the terms of a deal, which could include the yuan mechanism."

On the other hand, the poor performance of major European currencies at the start of the week allows the Greenback to find demand and help the pair cling to its daily gains. The US Dollar Index, which tracks the USD's value against a basket of six major currencies, is looking to finish the day with modest gains near the 98.50 handle.

Technical levels to watch for